Chapter one

1.1. INTRODUCTION
• Logistics is unique it never stops! Logistics is
happening around the globe, 24/7 during 52
weeks a year.
• Logistics is concerned with getting products
and services where they are needed and when
they are desired.
• When they go to the store, they expect
products to be available and fresh.
• The term logistics is not specific to the business or
public sector.
• it is applicable throughout private and public
enterprise activities.
• Over the years, common titles used to describe all of
logistics management activities have been business
logistics, physical distribution, materials logistics
management, physical supply, logistics and total
distribution.
• In 1991, the council of Logistics Management modified
its 1976 definition of physical distribution management
by first changing the term to logistics and defined as
follow:
• Logistics: is the process of planning,
implementing and controlling the efficient,
effective flow and storage of goods, services
and related information from the point of origin
to the point of consumption.
• It is total movement of materials from point
of material procurement to location of
finished product distribution.
• Business logistics has the objective of
providing the customer with the desired levels
of customer service.
• The logistics customer service goal is to
provide the right goods and services, at the
right place, at the right time, and in the
desired condition, at the lowest possible cost.
 1.2. Definition
• Logistics : is the process of managing the
efficient flow and storage of raw materials, in
process inventory, and finished goods from
point of origin to point of consumption.
• Business logistics: deals with all move-store
activities that facilitate product flow from one
point of raw-material acquisition to the point
of final consumption
• Product: is used in the broadest sense to
include both goods and services
1.2.1 Primary activities
• Those activities that are of primary importance in
achieving the cost and service objectives of
logistics. The key activities are
• Transportation
• Inventory maintenance
• Order processing
• These activities are considered primary to the
effective management of logistics because they
either contribute most to the total cost of logistics
or they are essential to the effective coordination
and completion of the logistics task.
• Transportation
• is the most important logistics activity simply
because it absorbs approximately 1/3 - 2/3 of
logistics costs.
• It is essential, because no modern firm can
operate without providing for the movement
of its raw materials or finished products in
some way.
• Inventory Maintenance
• In order to achieve a reasonable degree of
product availability, inventories need to be
maintained as buffers between supply and
demand.
• The extensive use of inventories results in
the fact that they account for
approximately 1/3 - 2/3 of logistics costs,
making inventory maintenance a key
logistics activity.
• Where as transportation adds “place” value to a
product, inventories add “time” value.
• In order to create this time value, inventories are
placed close to customers or close to manufacturing
points.
• The often-large number of such stocking points and
the high costs for carrying the products in storage,
typically 25 to 30 % of the products’ value per year,
require close management.
• It involves keeping stock levels as low as possible while
providing the desired level of stock availability for
customers
• Order Processing
• Order processing costs tend to be minor
compared to transportation or inventory
maintenance costs.
• It is also the primary activity that triggers
product movement and service delivery.
• These three logistics activities are further put in
perspective by nothing their importance in what
can be called the “critical logistics activities loop.”
• As shown in Figure 1-1, the time required for a
customer to receive an order depends on the time
required to deliver the order.
• Because the end result of any logistics operation is
to provide service by getting goods to customers
when and where they want them
• These three activities are central to this mission.
• Thus, they are called the primary activities.
 Customer

Customer order processing

and transmittal

Inventory
maintenance
Transportation

Figure 1-1: - The relationship of the three primary logistics activities to serving a customer
the “critical loop”
1.2.2 Supporting Activities
• It is additional activities carried out by the
logistics organization that support these
primary activities. These are
Ware housing
Materials handling
Protective packaging
Acquisition
Product scheduling
Information maintenance
The relationship of these to the primary activities and to the customer-service target is
shown in
Figure 1-2.

Primary
Activities

Supporting
activities

Figure 1-2: Relationship of primary and supporting logistics activities to the customer
service target.
• Warehousing : refers to the management of the space
required to hold inventories.
• It involves such problems as site selection, space
determination, stock layout, stock retrieval, dock design,
and warehousing configuration.
• Materials handling : is concerned with the movement of
the product at their stocking point-for example, transfer
of goods from warehouse receiving point to storage
location and from storage location to warehouse
delivery point.
• A number of problems are important to materials
handling, such as selecting materials-handling
equipment, order picking procedures, ands workload
balancing.
• Protective packaging
• One of the objectives of logistics is to move goods with no
move damage than is economically reasonable.
• It helps to assure damage-free movement.
• Acquisition : is the logistics activity that make the product
available to the logistics system.
• It is concerned with the selection of supply-source
locations, quantities to be acquired, timing of purchases,
and form in which the product is to be acquired.
• Acquisition should not be confused with purchasing.
Purchasing includes many of the details of the buying
process
• Product scheduling
• Whereas acquisition relates to the supply (in bound) side of a
manufacturing firm, product scheduling relates to the distribution
(out bound) side.
• It refers primarily to the aggregate quantities to be produced and
where and when they should be produced.
• Information maintenance
 Its information about cost and performance information
 Such information is essential to good logistics planning and control.
 Maintaining a database of important types of information for
example, customer locations, sales volume, shipping patterns and
inventory levels – supports efficient and effective management of
both primary and supporting activities.
 1.3. The Logistical Mission
• The major aims of logistics of an enterprise is helping
create customer value at the lowest total cost.
• Logistics exists to satisfy customer requirements by
facilitating relevant manufacturing and marketing
operations.
• At a strategic level, logistics managers seek to achieve
a previously agreed upon quality of customer service
• The challenge is to balance service expectations and
cost expenditures in a manner that achieves business
objectives.
I. Service
• Basic logistical service is measured in terms of
1. Availability: is having inventory to
consistency meet customer material or
product requirements.
2. operational performance, and
3. service reliability
• Operational performance: deals with the elapsed time from
order receipt to delivery.
• It involves delivery speed and consistency.
• Naturally, most customers want fast delivery.
• To achieve smooth operations, firms typically seek first to
achieve consistency of service and then to improve delivery
speed.
• It should be flexible in accommodating unusual and
unexpected customer requests.
• malfunction and recovery
• Malfunction : refers to the probability of logistical
performance involving failures, such as damaged products,
incorrect assortments, or inaccurate documentation.
• Service reliability: involves the quality attributes of logistics.
• The key to quality is accurate measurement of availability
and operational performance.
• To achieve service reliability: it is essential to identify
measures to assess inventory availability and operational
performance.
• To meet customer expectations: it is essential that
management be committed to continuous improvement.
• Logistical quality does not come easy: it’s the product of
careful planning supported by training, comprehensive
measurement, and continuous improvement.
II. Total cost
• Include all expenditures necessary to perform
logistical requirements.
• The prevailing managerial practice reinforced by
accounting and financial control, was to focus
attention on achieving the lowest possible cost
for each function of logistics with little or no
attention to total costs.
• Managers focused on minimizing functional
cost, such as transportation, with the
expectation that such effort would achieve the
lowest combined cost.
• However, the implementation of effective logistical
process costing remains a challenge in the 1990s.
• Many long-standing practices of accounting continue to
serve as barriers to fully implementing total-cost
logistical solutions.
• The appropriate level of logistics cost expenditure must
be related to desired service performance.
• The simultaneous attainment of high availability,
operational performance, and reliability is expensive.
• The key to achieving logistical leadership is to master
the art of matching competency with key customer
expectations and requirements.
1.4. Trends In Logistics
• Prior to the 1950s, the typical enterprise performed
the work of logistics purely on a functional basis.
• No formal concept or theory of integrated logistics
existed.
• The neglect of logistics during this evolution of
marketing can be attributed to three important factors.
• First of all, before computers and quantitative
techniques were widely available, there was no reason
to believe that logistical functions could be integrated
or that such cross-functional integration would
improve overall performance.
• In the decades that followed, changes in
logistical management practices began to evolve.
• Emerging information technology was not to be
denied the fertile arena of logistics.
• Early computer applications and quantitative
techniques focused on improving performance
of specific logistical functions such as order
processing, forecasting, inventory control,
transportation, and so forth.
• A second major factor contributing to a change in overall
management attitude was the volatile economic climate.
• The continuous pressure for profit improvement that began in
the early 1950s along with erratic market conditions has
continued into the 1990s.
• To date, this profit pressure focuses on managerial attention on
cost containment, avoidance, and reduction.
• Thus, technology and economic necessity combined in the
1950s to spark change in logistical practice that continues today.
• However, attempts to develop integrated logistics management
faced significant opposition in many firms.
• Managers who had traditionally been responsible for specific
functions, such as transportation or purchasing, were often
suspicious of organizational changes of logistics.
• During the 1980s and early 1990s logistics
practice underwent a renaissance that involved
more change than in all decades combined since
the industrial revolution.
• The most significant drivers of this change were
 Significant regulatory change
 Microprocessor commercialization
 The information revolution
 Widespread adoption of quality initiatives, and
 The growth of partnerships and strategic
alliances.
1. Regulatory Change
• Within a few months in the summer and fall of 1980, the
economic and political infrastructure of transportation in the
united states was cast on a radical course of reform as a
result of the passage of the Motor carrier regulatory reform
and Modernization Act (MCA – 80) and the Staggers Rail Act.
• This created an environment for transportation innovation.
• This relaxed restraints on services, prices, and
commitments provided by common and contract carriers.
• Similar deregulatory efforts occurred in various nations
throughout the world.
• All these pushed transportation closer to a free market
system.
2. Microprocessor Commercialization

• Many experts predicted that the commercialization of microprocessor

technology and distributed data processing during the early 1980s would
ultimately eliminate mainframe transaction computing.
• This prediction began to more closer to reality in the early 1990s.
• The logistical sector was a willing recipient of this new distributed, high-
powered computing technology.
• Low-cost data processing was particularly significant to logistics
operations, which remain among the biggest users of a firm’s computer
resources.
• The fact is that new generations of more powerful and less expensive
hardware scheduled to be available in the 1990s, continued to simulate
information-driven logistical innovation.
3. The Information Revolution
• Many firms began to experiment with
computer-to-computer linkages with
customers and suppliers to facilitate timely
and accurate information transfer and
database access.
• The impact of communication technology on
logistical practice will offer continued
opportunity to improve process integration.
4. Quality Initiatives
• One of the most important drivers of logistical change
was the widespread adoption of total quality
management (TQM) through industry.
• Due to global competition, industrialized nations of the
world were forced to take the benefits of quality
seriously.
• The idea of zero defects in products and services quickly
expanded to logistical operations.
• Firms began to realize that an otherwise excellent
product delivered late or damaged was not acceptable.
• Poor logistical performance served to eradicate product
quality initiatives.
5. Alliances
• The most basic form of cooperation is
developing efficient inter-organizational
working arrangements.
• Firms went even further and began to think of
both customers and suppliers as business
partners.
• The idea was to reduce duplication and waste
by concentrating on ways of doing business
that facilitated joint success.
• 1.5 Integrated Logistics Management
• This concept recognizes that providing better
customer service and trimming distribution costs
requires teamwork, both inside the company and
among all the marketing channel organizations.
• Inside the company, the various functional
departments must work closely together to maximize
the company’s own logistics performance.
• The company must also integrate its logistics system
with those of its suppliers and customers to maximize
the performance of the entire distribution system.
I. Cross-Functional Teamwork inside the company
• In most companies, responsibility for various logistics activities is
assigned to many different functional units:
 Marketing
 sales
 finance
 manufacturing, and
 purchasing.
• Too often, each function tries to optimize its own logistics
performance with out regard for the activities of the other
functions.
• However, transportation, inventory, warehousing, and order-
processing activities interact, often in an inverse way.
• For example, lower inventory levels reduce inventory-carrying costs.
II. Building Channel Partnerships
• The members of a distribution channel are linked
closely in delivering customer satisfaction and value.
• One company’s distribution system is another
company’s supply system.
• The success of each channel member depends on
the performance of the entire supply chain.
• Today, smart companies are coordinating their
logistics strategies and building strong partnerships
with suppliers and customers to improve customer
service and reduce channel costs.
• A response-based distribution system, in contrast, is
customer triggered. The producer continuously builds and
replaces stock as orders arrive. It produces what is
currently selling.
• For example, Japanese car makers take orders for cars,
then produce and ship them within four days.
• Producing for order rather than for forecast substantially
cuts down inventory costs and risks.
III. Third-Party Logistics
• A growing number of firms now outsource their logistics to
third-party logistics providers.
• Such integrated logistics companies perform any or all of
the functions required to get their clients product to
market.
Thank you
The end